Several diplomatic and business events in central Europe kick off the new week, though in Prague investors will have key industrial output data to pore over.

Czech industrial output growth, largely a proxy for automotive manufacturing, should slow in April from March but still post solid growth thanks to exports to Germany. Analysts forecast industrial output growth of 7.3% on the year in April from 9.5% in March. And rising exports fueled by the German economic boom should keep the Czech trade balance in a robust surplus of CZK14.6 billion, while import growth remains tame amid weak household demand, analysts said.

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In Budapest, Japan’s foreign minister meets his counterparts from Hungary, Poland, Czech Republic and Slovakia, while in Warsaw Polish executives, including those from PKO Bank Polski, TPSA, PKN Orlen and PGNiG, will participate in a business forum.

FOREX

Central Europe’s currencies finally appear set to start firming after sliding to lower and lower levels in recent weeks. The Polish zloty will strengthen slightly this week if the Polish central bank raises rates Wednesday and issues a hawkish statement, BPH said. This would take the zloty toward 3.92 to the euro, although the Greek debt crisis poses a risk, BPH added.

The Hungarian forint and the Czech koruna will benefit Monday if, as expected, Greece secures a second bailout package from the European Union and the International Monetary Fund. If that happens, Commerzbank said the forint can firm to below 265 vs the euro, a level it hasn’t seen for the past three weeks. Raiffeisen Bank said a moderate strengthening could be in store for the forint, which, if it breaks 265 forints against the euro, could see resistance at 263 forints.

FIXED INCOME

HUNGARIAN BOND YIELDS – The three-year benchmark bond yield was at 6.62% Friday afternoon from 6.67% late Thursday; the five-year yield was at 6.98% against 7.01%; and the 10-year was at 7.19% versus 7.20%.

POLISH BOND YIELDS – The average yield on two-year bonds was at 5.01% late Friday from 4.98% late Thursday, 5-year at 5.57% from 5.55%, 10-year at 6.04% from 6.01%.

CZECH BOND YIELD – The yield on the benchmark paper maturing in 2022 was at 3.74% late Friday from 3.81% late Thursday.

In Warsaw the fixed-income market will be treading water ahead of Wednesday’s rate decision, and a hike would send yields higher and fuel foreign investors’ interest in Polish government bonds, BPH said. Rises in yields in the upcoming week can be additionally supported by hawkish central bank commentary, BPH said.

In Warsaw, a local broker notes the market is closing in on the psychological 2800 level, which looks solid for now but could be vulnerable in the event of more bad news. In Prague, CEZ stock will be testing CZK900 on Monday, a trader says.

OTHER NEWS

POLAND: Poland’s treasury ministry will release a shortlist of bidders for the country’s second-largest oil refiner Grupa Lotos SA (LTS.WA) between June 10 and June 13, Treasury Minister Aleksander Grad said in a live interview for TVN CNBC.

POLAND: The first Chinese firm to win a major public works deal in the European Union plans to drop the contract to build part of a Polish highway over funding disputes, Poland said on Friday.

HUNGARY: Hungary plans to raise the excise tax on tobacco and bio-diesel, amendments to existing legislation, submitted Friday to parliament by Economy Minister Gyorgy Matolcsy, show. The excise tax on cigarettes would be raised in three steps starting this year to 19,400 forints ($107.65) per 1,000 cigarettes by July 1 2012, from the current HUF18,080, state news agency MTI said.

HUNGARY: The Hungarian government said Friday that rumors spread on the internet claiming that the country would nationalize bank deposits of more than 2 million forints ($11,050) are unfounded.

About Emerging Europe

Emerging Europe Real Time provides sharp analysis and insight into what’s making news in Central and Eastern Europe. Drawing on the expertise of our reporters in the Czech Republic, Hungary, Poland, Russia and Turkey, the site provides an inside track on economics, politics and business in this emerging part of the European continent.